That changed recently when the U.S. Department of Justice filed an indictment in federal court in Wisconsin alleging that Sinovel, two of its employees, and a former AMSC employee conspired to commit trade secret theft and criminal copyright infringement.

The technology involved is AMSC’s source code, software, equipment designs and technical drawings that relate to regulating the flow of electricity from wind turbines to the electricity grid. More particularly, the electrical control system includes the Power Module 3000 (PM3000) and the Programmable Logic Controller (PLC), both of which use AMSC’s proprietaryLow Voltage Ride Through (LVRT) sofware to keep wind turbines operational during temporary dips in electricity flow in the electric grid.

According to the indictment, AMSC took reasonable measures to maintain the confidentiality of its trade secrets and proprietary information such as restricting access to authorized personnel only, requiring a unique password to enter the computer system, and requiring employee certification of ethics and confidentiality rules.

The 11-page indictment states that the purpose of the alleged conspiracy was to:

obtain AMSC’s copyrighted information and trade secrets in order to produce LVRT compliant wind turbines, and to retrofit existing wind turbines with LVRT technology, without having to pay AMSC for previously-delievered AMSC software, products, and service or for AMSC’s trade secrets and intellectual property, thereby cheating AMSC out of more than $800,000,000 USD.

The remainder of the indictment lays out the details of the alleged conspiracy, which it says took place from about January 1, 2011 to about December 20, 2012. The former AMSC employee allegedly copied or downloaded the PM3000 and PLC source code, adapted it for unlicensed use within Sinovel’s turbines, and emailed the modified software to one of the Sinovel employees.

In exchange, Sinovel allegedly offered the former AMSC employee an employment contract worth about double what he was being paid at AMSC, but the contract made it appear that he would be working for a different company – a Chinese wind turbine blade manufacturer – for a period of time.

The former AMSC employee allegedly traveled to China to work on adapting the proprietary and trade secret information for use in Sinovel wind turbines, and Sinovel allegedly conducted a successful “voltage sag” test using the updated LVRT technology. One of the Sinovel employees allegedly wrote in a Skype chat with the former AMSC employee that the success was “all because of you.”

Sinovel also allegedly copied the AMSC PM3000 source code into some wind turbines commissioned in Massachusetts in 2011 and 2012.

There are so many things that could be said about this case, which began with several civil infringement and contract suits in China. I will offer just a couple of observations.

First, it seems an excellent case for the feds to pursue criminal charges because it represents the nexus of two of the Obama administration’s policy goals: supporting the U.S. clean tech industry and dealing with IP theft in China.

Second, as eloquently explained by wind patent and technology expert Philip Totaro in this prior post, the case points up the critical importance of LVRT technology for the stability of wind energy in China and the economic viability of Chinese wind turbine manufacturers.

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In the 1990’s, STR engaged in about five years of intensive R&D to develop a proprietary method to produce a “low-shrink” ethylene vinyl acetate (EVA), which avoided shrinkage of the resulting encapsulant.

STR began manufacturing and selling its low shrink EVA in late 1996 and subsequently grew to hold about 25% of the global market for EVA encapsulants.

James P. Galica was the director of STR’s materials science division during the low shrink EVA R&D project and oversaw the project team. Galica left STR in 2005 and joined JPS Elastomerics in 2006.

Shortly thereafter, JPS began producing and selling an encapsulant product using a method substantially identical to the one developed by STR.

STR sued JPS and Galica in state court in Massachusetts for breach of Galica’s employment contract, misappropriation of trade secrets, and violation of the state’s unfair trade practices law.

The trial judge, contrary to the jury’s findings, held that JPS and Galica misappropriated STR’s trade secret and thereby engaged in unfair trade practices. The trial court enjoined JPS from producing low shrink EVA for five years, and the defendants appealed the decision.

The appeals court agreed the evidence demonstrated that it was Galica’s knowledge of the causes of shrinkage, gained from STR’s trade secret method, which yielded the low shrinkage properties in JPS’s process:

Prior to Galica’s employment by JPS, JPS did not manufacture or produce EVA by any means. Prior to development of its trade secret method, STR produced EVA by contentional methods, but the resulting product did not have low shrink characteristics. The trial judge found that, under Galica’s supervision, JPS was able to modify its production processes in a manner which utilized [STR’s] discovery about the causes of shrinkage, but which employed adjustments to the production sequences different from those incorporated in the particular method which constituted STR’s trade secret method.

Thus, the 5-year injunction was justified:

Because the method developed by JPS derived from specialized knowledge brought by Galica from STR to JPS, and particularly because the evidence suggested that JPS would not have been able to develop such a method independently, the judge’s order enjoining JPS from production of low shrink EVA by any means for a period of five years (a period equivalent to the time STR spent in development of its trade secret method) was justified.

In what is emerging as a major green IP story, not just of technology but of international intrigue, American Superconductor (AMSC) recently filed two lawsuits against its erstwhile customer, Chinese wind energy system maker Sinovel.

Both cases involve allegations that a former AMSC employee who was arrested in Austria in July was indirectly paid by Sinovel for portions of AMSC’s wind turbine control software source code. The control software was developed by AMSC for use with Sinovel’s 1.5MW wind turbines.

AMSC accuses Sinovel of unauthorized use of the turbine control software source code and the binary code, or upper layer, of its software for the PM3000 power converters in the 1.5 MW turbines.

AMSC also believes the former employee illegally used the source code to develop a software modification so Sinovel could circumvent the encryption and remove technical protection measures on certain power converters used with the turbines.

Wind technology and wind patent expert Philip Totaro, principal at Totaro & Associates, said the disputed technology relates to “the low-voltage ride through (LVRT) capability, which provides stability of the wind turbine/farm in case of voltage fluctuation or drop-out on the grid.”

Totaro had this to add about the significance of the technology at issue to Sinovel in the context of an evolving Chinese wind industry:

The Chinese grid requirements related to LVRT capability have evolved due to the large-scale deployment of wind turbines on their grid, and stability has become an increasing issue. Anyone who cannot meet the new grid requirements will not receive permits/approval to deploy their turbines. With the size of a company like Sinovel (named #2 in market share globally based on 2010 sales volume) and the ongoing capital and operating revenue required to sustain their business, they are obligated to maintain their sales volumes or be forced into massive layoffs and downsizing. This challenge was made even more difficult since the Chinese market demand has decreased in the past 10 months and [Sinovel] had a volume supply contract with AMSC for converters with the LVRT capability.

According to a recent AMSC SEC filing, the allegations are the basis of two IP actions AMSC is seeking to file against Sinovel in China. AMSC submitted a first civil action application to the Beijing No. 1 Intermediate People’s Court for copyright infringement and a second civil action application to the Beijing Higher People’s Court for trade secret infringement.

However, in a reflection of the uncertainty surrounding enforcement of intellectual property rights in China, the SEC filing indicates that in each case the court must accept AMSC’s application for the case to proceed, “and there can be no assurance that the court will do so.”

According to the SEC filing, this complaint alleges that the defendants replaced AMSC”s PM1000 converters in certain Sinovel wind turbines with converters produced by Guotong and are using the replacement converters in conjunction with AMSC’s control software.

In light of the volume of clean tech business, technology transfer, and IP licensing done in China, these will be important cases to watch as barometers of IP enforcement there.

In the lawsuit, filed in April, Tesla accused Fisker along with its CEO, Henrik Fisker, its COO, Bernhard Koehler, and Mssrs. Fisker and Koehler’s design company, Fisker Coachbuild, of stealing Tesla’s confidential design ideas for a hybrid electric sedan.

Tesla had alleged that Fisker Coachbuild, which Tesla hired to help design a high performance electric-hybrid sports sedan, used confidential information acquired during the engagement to secretly design its own directly competing sedan, the Karma.

Last month Fisker announced that an arbitrator issued an interim award decision absolving the carmaker and the design company of any wrongdoing. The arbitrator’s decision is not public so our only source for the details of the decision is Fisker’s PR department, which didn’t release the grounds for the decision.

According to Fisker’s press release, the arbitrator found Tesla’s trade secrets claim “baseless” and “neither brought nor pursued in good faith.”

The technology relates to processors that convert feedstocks such as seed oils and animal fats into biodiesel fuels.

Greenline’s proprietary technology provides waterless systems to clean the fuel, allowing producers to avoid the time and money associated with introducing water into the process and later separating it out.

Greenline also enjoys an exclusive worldwide license to continuous flow technology, which greatly increases its processors’ production capacity.

A recent post discussed the companies’ tussle over venue, with Greenline trying to move a suit API initially filed in Arkansas to federal court in California and API fighting to transfer Greenline’s subsequent northern California case to Arkansas.

In July the federal court in Oakland, California, where Greenline had filed suit, decided to defer to the Arkansas court to decide where the cases should go forward.

In an order signed last month (greenline_arkansas_order.pdf), Judge Brian S. Miller of the Eastern District of Arkansas in Little Rock ruled that Arkansas is the proper venue for the case.

In the event that two lawsuits involving the same parties and same issues are filed in different jurisdictions, federal courts apply a first-to-file rule, subject to certain limited exceptions, to determine where the suit will proceed.

Judge Miller held that none of the exceptions, which include inequitable conduct, bad faith, anticipatory suit and forum shopping, applied in this case, and so the case will proceed in API’s home state of Arkansas because API beat its opponent to the punch, filing suit there before Greenline sued in California.

There is a third lawsuit pending between Greenline and API in federal court in Los Angeles, which also may be transferred to Arkansas. API has moved to dismiss that case, and in the alternative, to transfer the case to Arkansas to be tried together with the other suits (api_motion_transfer.pdf).

That suit, pending in federal court in Oakland, California, involves copyrighted processor designs as well as accusations of stealing trade secrets, breaching a processor installation agreement and engaging in false advertising.

In June API moved for the California case to be transferred to Arkansas, where it had previously sued Greenline over the same issues. Shortly thereafter, in the Arkansas suit, Greenline moved for the case to be transferred to California.

In the event that two lawsuits involving the same parties and same issues are filed in different jurisdictions, federal courts apply a first-to-file rule to to determine where the suit will proceed.

In a recent order (greenlineorder.pdf), Judge Claudia Wilken found that, because API sued in Arkansas before Greenline filed its California complaint, the Arkansas suit has priority for purposes of the first-to-file rule. However, Judge Wilken denied API’s motion to transfer and deferred to the Arkansas court to decide the appropriate forum for the case on Greenline’s pending motion there.

Given the dueling venue motions (and the cost in attorney time they require), it’s clear that the parties think they have much to gain from fighting their battle on friendly home turf.

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British Columbia based Xantrex Technology (Xantrex) makes advanced power electronic products that convert electrical power into other forms of energy. One of Xantrex’s major markets is renewable energy, and the company is a world leader in production of solar inverters (pictured below). Solar inverters convert DC power captured by solar panels into AC electrical energy. The energy is then provided directly to customers or to a utility or electrical grid.

Last month Judge Wiley Y. Daniel denied the defendants’ motion to dismiss (based on a forum selection clause in Thompson’s employment agreement) and granted Xantrex’s motion for a preliminary injunction (PI), ordering that Thompson could not work for AE as Vice President and General Manager of Solar Inverters (or work on solar inverter technology for any other North American competitor of Xantrex) for a period of one year (xantrexorder.pdf). Thompson and AE were also ordered not to use or disclose any Xantrex trade secrets.

Xantrex’s complaint (xantrex.pdf) alleged that Thompson breached his employment agreement by leaving Xantrex and immediately starting employment with AE (the non-compete provision prohibited Thompson from working for any competitor within one year of leaving Xantrex). Thompson worked on solar inverter technology at Xantrex, and AE entered the solar inverter market shortly before Thompson joined AE.

While at Xantrex, Thompson was Vice President of Engineering and Product Development and had access to the company’s confidential information. According to the complaint, Thompson had played a leading role in acquiring and integrating certain cutting edge solar inverter technology into Xantrex’s products.

The complaint also alleged assorted shenanigans by Thompson shortly before he left Xantrex, including downloading and transferring confidential Xantrex documents from his laptop, attempting to delete files to cover his tracks, and using Xantrex’s confidential market data to create market plans for AE.

Judge Daniel found the PI factors (likelihood of success on the merits, irreparable harm to Xantrex, threatened injury to Xantrex greater than harm of a PI to AE, and effect of PI on public interest) weighed in favor of granting the PI. The irreparable harm is that AE would get a head start into the solar inverter market based on Xantrex work, money and trade secrets if Thompson were permitted to take a position at AE nearly identical to the one he had at Xantrex.

As to success on the merits of the trade secrets claim, Judge Daniel found enough evidence that the confidential information accessed by Thompson prior to leaving Xantrex rises to the level of trade secrets (e.g., solar inverter product development information and data on the benefits of various product features). The court also found that Thompson’s rapid accessing of trade secret documents just before leaving Xantrex was of particular concern because his ready recollection of possible trade secrets would make their use by AE possible without him actually telling anyone. In other words, Thompson’s mere knowledge of the information would make misappropriation likely.

The court also found Xantrex would be likely to succeed on the breach of contract claim. Interestingly, Judge Daniel analyzed the non-compete provision under Canadian law, which strongly disfavors such restrictive covenants. The court therefore took a “blue pencil” approach and modified the clause so the geographic restriction, which was global in scope, only covered North America. With this modification, Judge Daniel found the breach of contract claim likely to succeed under British Columbia law.

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Greenline Industries (Greenline), based in Larkspur, California, designs processors that convert feedstocks such as seed oils and animal fats into biodiesel fuels. Greenline’s proprietary technology provides waterless systems to clean the fuel, allowing producers to avoid the time and money associated with introducing water into the process and later separating it out. Greenline also enjoys an exclusive worldwide license to continuous flow technology, which greatly increases its processors’ production capacity.

In 2006, Greenline and Arkansas engineering firm Agri-Process Innovations (API) created a venture, now called AP Fabrications (APF), for the purpose of installing Greenline biodiesel plants. In 2007, Greenline gave up its ownership rights in the venture, and API became the sole owner of APF.

Last month Greenline sued API and APF in federal court in Oakland, California for anticipatory breach of contract, misappropriation of trade secrets, false advertising and a declaratory judgment that Greenline owns the copyrights in its processor designs. Greenline alleges that its vendor agreement with APF provided that Greenline would be exclusively responsible for the design of biodiesel processing units while APF’s role was limited to installation of the units. Greenline also contends that the agreement allowed API to sell the processors but required that they be marketed as “Greenline Industries” plants.

The trigger for the lawsuit was a May 5, 2008 letter in which API and APF told Greenline they were terminating the vendor agreement and demanded compensation for (unspecified) intellectual property rights created by API and used by Greenline. Greenline alleges this repudiation of the agreement constitutes anticipatory breach of contract.

According to the complaint, API also claims rights to Greenline’s technology through statements on its web site that API designs the processing units. These and other statements implying ownership of the processing techniques, as well as claims of responsibility for the design of specific processing plants, form the basis for Greenline’s claims of false advertising.

While the anticipatory breach and false advertising claims seem reasonably well-founded, it’s hard to see how API/APF’s actions constitute misappropriation of trade secrets, considering that the only allegations of theft of intellectual property in the complaint are the May 5 letter and the statements on API’s web site.

The Uniform Trade Secrets Act (upon which many state trade secrets laws are modeled) defines misappropriation as acquisition of a trade secret by someone who knows or should know it was acquired by improper means or disclosure of a trade secret that was improperly acquired. The facts of the complaint suggest that any acquisition or disclosure of Greenline’s proprietary information by API or APF occurred pursuant to the vendor agreement, which was in force until last month. Simply making misrepresentions of ownership of a particular proprietary technology to third parties would not seem to rise to the level of misappropriation.

The other striking thing about this dispute is the extremely short time period between API/APF’s letter to Greenline terminating the agreement (May 5, 2008) and the date Greenline filed the lawsuit (the complaint is dated May 12, 2008). This rapid turnaround suggests either that tensions were brewing for a while or the two sides made little attempt to resolve the dispute before resorting to litigation.